The Role of Internal Auditors and Provider Attorneys in Investigations – Can’t We All Just Get Along?

New Jersey Criminal Lawyers Schwartz Posnock

A Criminal Law Article

By NJ Criminal Lawyer, David A. Schwartz, Esq.

Earlier this year, the AHIA-1 ListServ ran a series of postings from members on the degree of independence granted to and restrictions imposed upon auditors working in large institutions. The tenor of the posted commentary varied widely, and included some clear consternation and thinly veiled mistrust directed toward attorneys representing these providers.

I agree with my attorney colleagues, that healthcare auditors are the most significant link in the chain anchoring providers to a foundation of compliance. Good attorneys are risk-adverse individuals. Conscientious attorneys will expect the highest caliber audits to be undertaken with the highest degree of ethics and professionalism. This is simply reality-based law practice. The statutory and regulatory labyrinth of healthcare law demands nothing less.

For example, auditing is perhaps the single most critical feature of a healthcare compliance program, which can impact on compliance program effectiveness. The process of initiating compliance programs should begin with performance of baseline audits, culminating in comprehensive reviews of all institution systems. Indeed, various compliance guidance programs published by Health and Human Services (HHS), specifically recommend initial comprehensive reviews.

After baseline audits are completed, regular and periodic audits are essential elements of compliance programs going forward. In baseline and periodic audits, there should be no restrictions or conditions placed on auditors by provider attorneys (with the exception that all audits be undertaken within the terms of compliance programs).

Attorneys and auditors should expect HHS-Office of Inspector General (OIG) and Department of Justices (DOJ) reviews of internal audit will be rigorous. Outside audits conducted as part of investigations or by virtue of entering into compliance agreements, as a result of a false claim(s) settlement agreement, will be expert and comprehensive. Operating on the assumption of anything less is the first step toward disastrous results for providers.

There is clearly the perception among some internal health-care auditors that provider attorneys are potential adversaries of auditors. Attempts by attorneys to manipulate audits, directly, or indirectly by “finessing” the auditor, are not an uncommon refrain heard from healthcare auditors.

Auditors need to educate attorneys in processes and results of audits. It is safe for auditors to assume that attorneys know little about how audits are carried out, and even less about the art of analyzing audit results. Affirmatively advising attorneys of the benefits of thorough, “honest audits,” and pit-falls of “outcome orientated” audits will facilitate investigation processes. Credible audits are farsighted, and part of multi-elemental solutions for institutional providers with systemic problems.

In keeping with the idea of a mutually supportive role, experience teaches healthcare auditors and provider attorneys that common goals should be shared, and that these goals can be accomplished while being guided by ethical principles. Shared ultimate goals of facilitating the delivery of healthcare and ancillary services, while adhering to best practices, will not change. However, perceptions that divergence from these goals, or, indeed, that the attorney now has an “agenda,” is triggered when providers are faced with questions of potential fraud raised by internal audits, or investigations commenced by law enforcement agencies. Provider attorneys are the front-line of defense in either situation. The attorney’s role is immediately diversified, and must deal with mounting pressures leveraged from the outside.

Perhaps this perception is engendered by the fact that responsibilities of providers’ attorneys extend beyond the application of the controlling law to facts of each situation. The economics of responding to problems, and the political and social impact (particularly to the provider’s patients) underlie the attorney’s advice. Routinely, providers demand answers to these questions from their attorneys on short notice and they may expect answers that endorse their conduct.

Of course, complicated issues surrounding the timing of audits, personnel conducting audits, and what to do with audit results, occur in the context of an auditor’s discovery of “potential problems” or in the commencement of outside investigations by Healthcare Financing Authority (HCFA), or the DOJ. Discoveries of fraudulent billing practices may not always be, at the outset, understood as a “fraud.” Conversely, not every questionable billing event is going to give rise to criminal or civil liability or to administrative sanctions.

The legal landscape to be traversed by attorneys is further complicated by strategic choices, which providers must make based on advice of counsel during investigations. These choices are of considerable magnitude for reasons stemming from desire to control one’s own fate by attempting to control eventual outcomes of investigations. That is, whether cases will (1) end as administrative matters within HHS; (2) be resolved through the court system as civil matters; or at worst; (3) develop into full-blown criminal investigations where the provider-entity, and perhaps individuals in management, are indicted and face heavy fines and possible imprisonment.

Another consideration under the attorney umbrella is whether to dig in the trenches for a bloody and protracted battle. Indeed, providers may not have much of a choice in this regard. In the real world of healthcare investigations, providers are not always offered, nor can they always negotiate, resolutions that leave the entity viable or without the worst case scenario of prison. In essence, resolutions may not be palatable to providers, leaving only years of high-stakes and expensive litigation ahead.

Cooperation by means of voluntary disclosure is, in theory, another option for providers. However, voluntary disclosure is like jumping off a bridge without a bungee cord. Once you start, you cannot take it back. If providers decide to voluntarily disclose and cooperate with investigators, then make a 180 degree turn, suddenly pulling the plug and circling the wagons, you can bet that investigations of the particular institution will be comprehensive to say the least.

With increasing frequency, federal prosecutors demand that corporations waive attorney-client privilege as a prerequisite to resolving criminal cases. It was recently revealed in DOJ policy Guidelines on the Prosecution of Corporations that in determining whether to prosecute, consideration should be given to the corporation’s timely and voluntary disclosure, and willingness to waive attorney-client privileges. In gauging cooperation, prosecutors may consider whether results of internal investigations are disclosed and attorney-client privileges waived.

Finally, we need to understand the unfair reality that providers can still lose, even by winning. Negative notoriety of full-scale investigations is certainly bas for business and dilutes confidence among provider patients, medical staff, and health plan administrators. Can the CFO say that the hospital was vindicated after spending untold amounts of money defending bogus investigations? It is usually true that the beginning of a case makes the biggest splash in the media. When all is said and done, and no charges are filed, or the huge fraud case ends up as an innocent overpayment issue, providers cannot buy press conferences. Depletion of resources, measured in both dollars and human effort (plus distraction, lower morale, lack of productivity, etc.), impacts decisions regarding what to do if auditors discover “problems.”

Where Does This Leave Us?

Experienced attorneys know better than to expect investigative fairness and a utopian justice system. In dealing with provider attorneys, auditors should possess the same appreciation for inherent flaws in investigative and prosecutorial processes. These processes are commenced and carried out by humans, and are subject to motivations and dynamics of prevailing political winds.

Having detailed the obstacles facing provider counsel, where does this leave auditors and lawyers in the investigative process? The practical bottom-line approach to choosing strategic options for attorneys is the process of determining the precise problem from the outset. Preservation of all viable evidentiary privilege or doctrine of confidentiality is critical to the process of developing that strategy.

Faced with potential problems, providers should conduct internal investigations. Legal precepts of maintaining evidentiary privileges are simple. If investigations are not initiated and controlled by attorneys, attorney-client privileges and qualified work-product privileges will be lost. Retention of these privileges allows attorneys and auditors to conduct investigations in a contemplative and reasonable fashion. Losing these two powerful means, by which to gather and evaluate information, forces critical strategic decisions to be made in the dark.

Auditors and attorneys should not expect refuge in “self-critical analysis” or “self-evaluative privileges.” Only a few courts, and a handful of states have recognized or adopted these privileges, and then on a limited basis. These privileges protect confidentiality of investigative audit reports and underlying processes, which are prepared inquiries that are “evaluative” and confidential in nature. Communications need not be made to attorneys. This so-called privilege has yet to be uniformly adopted, defined or understood. One possible approach toward uniform application will come with legislation, not court opinion. Uniform legislation of this privilege has been proposed, such as model privilege legislation by (Ethics Resource Center) ERC.

Auditors and attorneys are brought further together by the fact that best practices strongly suggest that in-house auditors be appointed as attorney agents for investigations. A letter to that effect should be adopted by governing bodies of providers (e.g., the Board of Directors) at the outset of investigations. Attorneys establish protocols for collecting and segregating documents to meet all requirements for maintaining attorney-client privileges, and for creation of privilege logs.

While agency relationships may make auditors uncomfortable, or cause them to feel potentials for compromise, this measure is imposed only to satisfy legal requirements, not bring influence to bear on auditor functions. Further, while attorneys have authority, as leaders of internal investigations, to direct the work performed by auditors, they do not direct what auditors may find or report.

Under what circumstances should providers self-report lack of compliance with requirements of government-funded healthcare programs? Laws in this area are unclear. Some government sources believe that failure to report overpayments creates an independent basis for liability. For example, under the Social Security Act, providers with knowledge of payment errors may be criminally liable for concealing or failing to disclose these errors.

Of course, attorneys can likewise be invaluable in providing preventive advice to “outcome oriented audits.” Federal obstructions of justice statutes are broad and encompass conduct well beyond what auditors might think would be criminal conduct. Destruction, concealment, alteration or falsification of documents called for by subpoena may constitute obstruction of justice. The concept of “anticipatory” obstruction of justice, which includes destruction or alteration in anticipation of subpoena, is actionable as well. Obstruction proscriptions are broad and apply to anyone who endeavors to corrupt or influence due administration of justice. 18 U.S.C. S 1503.

For all of these reasons, it is essential that auditors and provider attorneys look upon investigative processes as a two-way street. Mutual assistance and understanding are critical. Both auditors and attorneys can take a straight path toward reaching common ground.

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